It probably won’t come as a great revelation, but insurance can be complex.
Like other financial products and legal contracts, there can be a lot to wrap your head around.
This complexity can result in some misunderstandings.
When it comes to protecting your investment property, you don’t want to have any misconceptions derailing your decisions.
There can be consequences if you act, based on a misconception.
For example, it would be devastating if you were under the impression insurance needed to be in line with a tenancy cycle, and had waited to take out cover, only to have the rental hit by a catastrophic event in the interim.
Tips: Insurance can actually be taken out at any time, provided a loss isn’t already occurring.
At EBM RentCover we believe in being transparent and adding value for clients by being an experienced advisor in times of uncertainty.
So let’s explore a handful of common misconceptions about landlord insurance:
The policy is transferrable
When a property changes ownership, the name on the title deed gets transferred – but this is not the case when it comes to insurance.
Insurance is a legally binding contract between two parties – the policyholder and the insurer.
The two parties enter into an agreement and that agreement remains in place until the contract is cancelled or terminated.
If the policyholder no longer owns the asset being insured, they cannot hold cover, and the insurance is ultimately void.
If the new owner wants insurance, they need to apply for their own policy and their insurer needs to agree to cover them and their property.
Note: Landlord insurance cannot be transferred from one owner to the next.
Cover is only needed when there’s a tenant in the residence
Admittedly, many of the most common risks that landlords face and insure against occur when they have a tenant in the property, like accidental damage or loss of rent.
But not all the risks are tenant-related.
Other risks include damage from events like fire, storm, flood, or cyclone.
There is also the risk of theft and vandalism.
These are risks that can eventuate whether there is a tenant in the residence or not.
If a landlord waits until they have a tenant occupying the home to take out cover, and one of these events occurs in the meantime, they will find themselves without cover and potentially face a significant damage bill.
Another insurance matter to consider is legal liability.
Regardless of whether there is someone occupying a rental or not, the risk that someone could be injured, or their property damaged, when they are on the premises, still exists.
Consider these scenarios for example.
A potential tenant comes to inspect the property and falls down the stairs because of a damaged handrail.
Or the carport roof collapses onto the agent’s car when they are checking in on the property.
Or the electrician repairing the wiring falls off the roof because they weren’t told the tiles were in bad repair.
If an owner is found responsible, or even partly responsible, for any of the incidences we just mentioned, the liability component of a landlord insurance policy can offer protection.
This is why it is imperative that the rental is adequately insured even when there is no tenant in occupancy.
Note: To be protected against a range of insured events and legal liability, a landlord needs to have insurance cover in place from the day they become the owner of the investment property until the day they cease being the owner.
There’s no cover between tenancies
There may well be cover between tenancies – and it’s important for all the reasons described above.
However, whether a vacant rental is covered by insurance will depend on specific circumstances, like whether the rental is vacant for a limited duration or an extended period.
In the case of limited vacancy when the changeover in tenants occurs, the property will usually remain protected by insurance, assuming there is a valid policy in place.
However, the risks covered may change (e.g. the property is likely not covered for tenant-related matters like loss of rent or tenant damage while a lease is not in place).
Landlords should read their PDS for finer details.
When it comes to the property being unoccupied for an extended period – that’s a different story.
Once a property is vacant for longer than a prescribed duration, the insurer may not agree to continue insuring the property.
This is because vacant properties present a greater number of risks for insurers such as an increased risk of squatters, theft, vandalism, or preventable damage such as from burst pipes.
Generally, if the insurer agrees to continue to cover a vacant property, a higher excess will be applied and some restrictions on coverage might be imposed (e.g. not offering cover for water damage due to burst pipes, glass breakage, or vandalism).
And what about before a tenancy?
If you purchase a property, you have an insurable interest from the moment you sign the sales agreement.
Even if you don’t have tenants secured, and you are unsure about your vision for the property, you should put insurance coverage in place immediately.
This provides protection if something unexpected and devastating occurs – like a total loss, such as a fire – during the settlement period. If you don’t have cover, and something happens, it will be up to the buyer to fork out the damage and loss costs.
Note: Rentals usually remain insured (with some restrictions on coverage) during the changeover in tenancies, so long as the time between one tenant moving out and another moving in is not excessive. But if the property remains vacant for an extended period, the insurer needs to agree to continue covering the rental.
Pets must be named on the lease
Covering for pet damage in landlord insurance policies is not standard.
In fact, not that many insurance providers offer the cover.
For a number of those that do, the conditions imposed can be a bit onerous – requiring the pet to be named on the lease and requiring multiple inspections are a couple of common conditions on the cover.
But not for EBM RentCover policyholders.
We not only offer cover for domestic pet damage (up to $70,000) in most of our landlord insurance policies, but we also don’t impose restrictive conditions.
While the pet must be owned by the tenant, we don’t need the pet to be named on the lease, giving landlords peace of mind in knowing that, if their tenant’s pet damages the rental and the tenant doesn’t make good, their insurance will come to the party – whether they knew there was a pet living at the premises or not.
In addition, we don’t require any extra inspections to be carried out. Landlords or their agents just need to inspect the property within six months of the initial lease and then at least annually thereafter.
Note: For many landlord insurance providers that offer pet damage cover, naming the pet on the lease is a requirement – but not at EBM RentCover. Our pet damage cover is generous, and the conditions are not onerous.
Landlords are responsible for covering the tenant’s losses
Landlord insurance does not extend to a tenant.
If a rental property is impacted by the unexpected – fire, storm, flood – or belongings are burgled, a tenant is not able to claim or recoup the costs under their landlord’s insurance policy.
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This means, if a tenant does not have their own cover, they may be out of pocket.
This brings us to a common question asked by tenants: Do I really have enough belongings to make insurance worthwhile?
The reality is that it does not take much for the total value of belongings to add up.
Plus, tenant insurance doesn’t just cover belongings.
It can offer cover for temporary accommodation (if the rental they are living in becomes uninhabitable) and legal liability.
Legal liability is an area often misunderstood by tenants.
To sum it up, here is an example where legal liability cover might apply:
Say you have a guest over and they are sitting casually on the couch, however, the mirror that hangs above them (a mirror the tenant recently hung) falls and hits them on the head, causing serious injury.
They can sue the tenant if it was found the mirror was not hooked correctly to the wall.
Legal liability would typically cover medical expenses and legal fees associated with this.
Note: Tenants need their own insurance which should typically cover them for specific risks they may face as a renter including fire, theft, storm, and liability.
Guest Author: This article was written by the team at EBM RentCover and was originally published here. EBM RentCover is one of Australia’s leading landlord insurance providers.
